Assume that the Rome Electricity Company (REC) wants to create a sponsored ADR program worth $300 million
Question:
Assume that the Rome Electricity Company (REC) wants to create a sponsored ADR program worth $300 million to trade its shares on the New York Stock Exchange. Assume that REC is currently selling on the Borsa Italiana (the Italian Stock Exchange, in Milan) for €30.00 per share, and the current dollar/euro exchange rate is $1.2500/€. American Bank and Trust (ABT) is handling the ADR issue for REC and has advised REC that the ideal trading price for utility company shares on the NYSE is about $75 per share (or per ADR).
a. Describe the precise steps ABT must take to create an ADR issue meeting REC’s preferences.
b. Suppose REC’s stock price rises from €30.00 to €33.00 per share. If the exchange rate does not change, what will happen to REC’s ADR price?
c. If the euro appreciates from $1.2500/€ to $1.2900/€, but the price of REC’s shares remains unchanged in euros, what will happen to REC’s ADR price?
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
a REC wants to start an ADR program equivalent to about 300 million Current REC stock price in euros ...View the full answer
Introduction to Corporate Finance
ISBN: 978-0324657937
2nd edition
Authors: Scott B. Smart, William L Megginson
